FSB statement on reforming interest rate benchmarks


The Financial Stability Board (FSB) has published a statement on reforms to interbank offered rates (IBORs) and the development of overnight risk-free rates (RFRs) and term rates.

Points of interest include:

  • to ensure financial stability, benchmarks which are used extensively must be especially robust;
  • the Official Sector Steering Group (OSSG), set up to coordinate international work to review and reform interest rate benchmarks, welcomes the progress that has been made by public authorities and private sector working groups on the identification and development of overnight risk-free, or nearly risk-free, rates (RFRs) that are sufficiently robust for such extensive use;
  • overnight RFRs are robust as they are anchored in active, liquid underlying markets. They may also be appropriate for many users who wish to measure or hedge general interest rate movements rather than fluctuations in bank credit premiums;
  • in the market where IBORs is disappearing, notably markets currently reliant on LIBOR, there needs to be a transition to new reference rates;
  • in some other markets, authorities and market participants continue to work on further reform or strengthening of IBORs in tandem with their efforts to identify and facilitate the wider use of RFRs. Some of the working groups on RFRs have also been considering the development of new forward-looking term rates derived from RFRs; and
  • an overnight RFR may not be the optimal rate in all the cases where term IBORs are currently used. In some cases, there may be a role for term rates, including RFR-derived term rates, or term rates derived from other liquid markets.

Angie Bamboulis